Ten years later, competitive balance remains elusive

As the decade comes to a close, it's interesting to look back on what was considered one of the baseball's largest problems coming into the 21st century: competitive balance. In the year 2000, commissioner Bud Selig's Blue Ribbon Panel released highly publicized findings on this very subject. The panel's most important conclusion was that revenue disparities were causing "chronic competitive imbalance," which "seems likely to remain severe unless Major League Baseball undertakes remedial actions proportional to the problem."

In the summer of 2000, the big-spending New York Yankees had just won the previous two world championships and were heading toward their third straight. Meanwhile, small-market teams such as Montreal, Milwaukee and Kansas City seemed to have no chance to compete. The panel's main recommendations were the creation of a central fund, an expansion of revenue sharing and the introduction of a luxury tax, all of which were implemented, albeit not as strongly as the panel recommended.

The panel recommended that 40% of all local revenues be shared evenly between clubs. Today, 31% of revenues are shared in this same fashion. The panel also recommended a 50% luxury tax on payrolls above $84 million. In 2003, MLB implemented a 17.5% percent tax (for first-time offenders) on payrolls above $117 million.

A decade after the Blue Ribbon Panel released its recommendations, many of which were enacted, it's time to reevaluate whether there has there been much or any improvement in baseball's competitive balance. While some teams, such as the Pittsburgh Pirates (owners of 17 straight losing seasons), seem to be down and out for good, competitive balance seems to have lost its status as a hot topic among writers and critics discussing what's wrong with the game. This year notwithstanding, baseball fans have been treated to World Series featuring small- and mid-market clubs such as Tampa Bay, St. Louis, Detroit, Colorado and Florida over the past seven years. Part of this shift in perception might also stem from Bud Selig himself, who boldly stated before last season that "there's more competitive balance than ever in the history of baseball", a development he credited to the improved economic system that baseball has developed over the past decade.

According to Selig, baseball was on the verge of a competitive balance disaster in 2000, but has done a complete 180 to produce the most competitive balance-friendly environment in the history of the game. Does the data back him up? To find out, let's look at how baseball has fared over the last decade in four key measures of competitive balance.

We can first look at a simple measure of parity in the game, going back to 1970. In a nutshell, how good are the good teams, and how bad are the bad teams? A large gap between the best and worst teams in baseball could be indicative of a competitive balance problem. Indeed, the late '90s and early 2000s saw teams routinely surpassing the 100-win mark, including two teams that won more than 110 games (the 1998 Yankees with 114 and the 2001 Mariners with 116). On the other side of the coin, the 2003 Tigers made a run for the most losses in history, finishing with 119, one behind the 1962 Mets' modern-day record.

Taking a look at the standard deviation of winning percentages (which measures how spread out they are) in each year since 1970, we see the above smoothed graph. The data backs up our intuition -- there was an increase in the spread of team talent during the late 1990s and early 2000s. During these years, the good teams were better and the bad teams were worse. However, the good news, if you like evenly matched teams, is that this has decreased in recent years. In fact, the parity in the game today is back down near its 1980s levels. While this is a step forward, there are other aspects to competitive balance which are probably more important.

Verdict: Modest success

One of the commonly held complaints at the turn of the millennium was that some teams didn't have a chance year after year, while other teams were perennial contenders. In other words, a down-and-out team had little hope of becoming a contender in the following season. Back at the turn of the millennium, the Yankees and Braves seemed as though they would be good forever, while some other teams found themselves perpetually in the cellar. Part of Selig's stated mission is to make sure that every team has hope of contending at the beginning of the season, but in 2000 it seemed as though the same cast of characters were winners and losers year after year.

If this were so, we would expect to find a high correlation between teams' winning percentages from year to year. The smoothed graph below shows the year-to-year correlation from 1970 to 2009. It's interesting to note that the correlation was quite high in the 1970s, when nobody seemed to be complaining about competitive balance. Through the 1980s and early '90s, however, the correlation dropped sharply, coinciding with the fact that a different group of teams were in the playoff hunt every single year, with no real dynasties.

Alarming Selig and company, the correlation spiked again in the late '90s, meaning that the same teams were good year after year, while bad teams continued to be bad. If the Blue Ribbon Panel's goal was to reduce this continuity and allow teams bad teams to bounce back more quickly, they did their job. In the last several years things have changed, and today, year to year continuity is back down near its 1980's levels, indicating that if a team is bad one year, it can still have hope in the following season.

Verdict: Modest success

While it may now be easier go from good to bad or vice-versa, one of the main worries of the Blue Ribbon Panel was that the big market teams had a systematic advantage and could win more often than they deserve. Because big market teams can make big money in local revenues, the concern was that these teams could buy the best players and become contenders year after year, leaving the small market teams out to dry. If this were the case, we would expect to see a high correlation between a team's market size and a teams' rank in the standings.

In the smoothed graph below, we see that the Blue Ribbon Panel's worries were founded. There was little correlation between market size and wins throughout the 1980s and early 1990s, meaning that small-market clubs could compete with the big boys quite easily. However, in the late '90s there was a dramatic spike. If baseball did not take strong action, the panel warned, this would become a permanent feature of the game.

Despite enacting a luxury tax and increasing the amount of local revenues shared, this is one problem that still plagues major league baseball. Big market teams such as the Yankees and Dodgers still hold the same advantages they have enjoyed since the beginning of the decade, and there is no sign of this subsiding. Meanwhile, small market teams still have just as much trouble winning as they did when the panel made its recommendations. While there has been an increase in shared local revenues to help small-market teams, some have complained that these clubs are simply pocketing the money rather than investing it in a quality on-field product. Perhaps if this is addressed, we will see the small market teams competing with big market clubs once again, but for now, this is a major problem that plagues MLB as much as ever.

Verdict: Failure

A final indicator of competitive balance is an examination of the disparity in team salaries. Everybody knows that money can buy talent, so a large gap in team payrolls is indicative of a competitive balance problem. In Selig's ideal world, all teams would have similar payrolls, with each team having access to the pool of high-priced free agents.

To measure wealth or income disparity, economists use something called a Gini coefficient, which also happens to perfect for measuring disparity in team baseball payrolls. Don't worry if you don't know exactly how it's calculated -- just know that it's an index of inequity, so a higher index indicates a larger disparity is team payrolls.

In the early 1990s team payrolls were fairly similar, with little variation between clubs. However, the Blue Ribbon panel correctly picked up on the fact that in the late '90s this inequity increased dramatically. Their recommendations were supposed to help even this out, so that small-market teams could afford to field a competitive team and large-market teams wouldn't be able to buy all of the best players. However, the news that Selig doesn't want to hear is that the disparity in salaries has persisted throughout the decade of the 2000s with no perceptible drop. In fact, team payrolls are just as imbalanced now as they were when the panel released its report 10 years ago, despite increased revenue sharing and a luxury tax. This continued disparity among team payrolls indicates that there is indeed still a competitive balance problem to be dealt with.

Verdict: Failure

Of the four indicators of competitive balance, Selig and MLB have a mixed record. On one hand, the best and worst teams aren't quite as extreme as they used to be, and the same few teams are not dominating year after year as they were in the late '90s and early 2000s. That represents some modest progress in baseball's quest for competitive balance. However, on baseball's two most important fronts, payroll imbalance and small market competitiveness, MLB is basically in the same situation it was in at the beginning of the decade. This systematic disparity between teams' ability to succeed is at the heart of the competitive imbalance problem, and these issues remain the most dangerous problems for Major League Baseball. That's not to say that the changes Selig enacted in response to the Blue Ribbon Panel weren't helpful -- who knows what the game would look like today had there been no changes -- however, there is clearly more work to be done. While the commissioner can claim some improvements, he is fooling himself if he considers this to be the best era of competitive balance in the history of the game.

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